Blackstone Buying Majority Stake in 40 Shopping Centers

Blackstone Group LP is buying a majority interest in 40 shopping centers valued at $1.1 billion as it continues to load up on grocery-anchored retail property in the U.S.

The private-equity company will pay roughly $274 million in cash and assume $463 million of debt for a two-thirds stake in the properties, which are concentrated in the metropolitan areas of New York, Washington, D.C., San Francisco and San Diego. The seller is a UBS Wealth Management North American Property Fund.

Meanwhile, real-estate investment trust Kimco Realty Corp., which manages the centers and already owns an 18% stake in the portfolio, will boost its share in the portfolio to 33%. Kimco, which will continue to manage the properties, will pay roughly $61 million in cash and assume an additional $104 million of the venture's debt.

The deal underscores Blackstone's already large bet on grocery-anchored centers in the U.S. The firm, which has $210 billion in assets under management, already owns roughly 700 such centers spanning a cumulative 110 million square feet. It bought the U.S. portfolio of Centro Properties Trust for $9.4 billion in 2011 and later bought several centers from each of Equity One Inc., EPN Group Inc. and Regency Centers Corp.

Blackstone is betting that occupancies and lease rates in the industry will continue to recover after suffering greatly during the recession. The average vacancy rate for grocery-anchored centers in the top 54 U.S. markets was 11.2% in the fourth quarter, down from a recent high of 11.7% in the second quarter of 2011, according to real-estate analysis company CoStar Group. Still, that far exceeds the industry's vacancy rate of 8.6% and less during the boom.

In addition, new construction of grocery-anchored centers remains minimal, as it is for most retail formats, CoStar says. That means owners of such centers face less competition for tenants and shoppers.

The 40-center portfolio in the deal announced Wednesday was assembled by Kimco and the UBS fund from 2005 and 2007. It spans roughly 5.6 million square feet.

The centers are "very high quality assets," David Henry, Kimco's president and chief executive, said during a call Wednesday to discuss Kimco's fourth-quarter financial results with investors.

"So we are very happy to be going from 18% to 33%, and we are happy to continue our role as the operating partner and should continue to be paid for that."

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